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New to Fraud & The Fraud Library?

According to the CyberSource annual Online Fraud Report total online fraud losses for U.S. retailers was $2.7 billion in 2010.


According to the CyberSource annual Online Fraud Report total online fraud losses for U.S. retailers was $2.7 billion in 2010.

No idea what Card not Present means?

Credit card purchases are described as either being “card-present” or “card-not-present.” The difference between the two is the presence of the physical card. If a merchant processes a transaction in which the consumer physically gives them the card to process the order, the transaction is considered card-present. If the merchant doesn’t take physical possession of the card to process the order, such as in the case of a telephone order, it is considered a card-not-present transaction.

So who pays when a fraudster steals goods and services? It may surprise you to find out the merchant is left with the bill in most of the cases. For purchases at a physical store in which the consumer comes in and buys goods and services with a credit card, we call this purchase a card-present transaction. In this transaction a consumer hands a merchant the physical card.

When the goods and services are sold to a consumer and the physical card is not given to the merchant, for instance they phone in an order (“Telephone Order”) or make a purchase through a catalogue (“Mail Order”), they are conducting what is called a card-not-present transaction. Mail order and telephone orders are typically lumped together in a category we call MOTO. The sale of goods and services online, called “e-commerce,” is also a member of this group.

In terms of orders processed, far more orders are processed in the card-present space than the card-not-present  space. While the card-not-present space represents less than 1/3 of the total credit card purchases annually, the e-commerce space is showing significant year-over-year growth. Today e-commerce orders represent a very small percentage of the total transactions occurring annually, but as you explore and expand into this channel it is important that you have the processes and tools to prevent fraud losses.

In terms of fraud, the incidence of fraud in the card-not-present  channel is far greater than the card-present channel. Orders given in the card-not-present channel are far riskier for a merchant because the fraudster is anonymous to you.

Fraud is nothing new to the merchant. Since the beginning of time, man has always looked for the opportunity to defraud others — to gain goods or services without making payment.

For the credit card industry, fraud is a part of doing business, and is something that is always a challenge. The merchants that are the best at preventing fraud are the ones that can adapt to change quickly.

This website focuses on the prevention of fraud for the card-not-present transaction. The payment process, fraud schemes, and fraud techniques will all focus on these types of transactions. In some cases comparative views of card-present to card-not-present is made, but for the most part I only talk to the card-not-present transaction. It is important to understand the fraud-prevention techniques used in the card-present world do not translate to the card-not-present world. There are a number of books and references available for preventing fraud in the card-present space, but very few resources for the card-not-present space. The specific fraud-prevention techniques discussed in this website are designed specifically for the card-not-present space, and will provide far better results for merchants.

How to use the Fraud Library

The Fraud Library is setup to provide information about how to prevent credit card fraud in the card-not-present space (mail order, telephone order, e-commerce). The site provides background information on Payment and Fraud along with detailed information on fraud prevention techniques and best practices.

If you are new to fraud, start from the beginning of the Payment section and work your way through it, and you will find that each section will build on what you learned before. When you are done you will have a good foundation on preventing fraud. For the more advanced fraud practitioner, you may use this site more as a reference tool, to look up certain techniques or schemes.

Before you can successfully build an effective strategy to combat fraud, you have to understand the business processes and techniques that are available to you.

Once you read through this site you will find yourself coming back to it as a reference to brush up on fraud-prevention techniques and how to use them. You will also come back to learn what's new out there to help you in your quest for stopping fraud.

Are you brand new to fraud prevention?

If you are new to the fraud space, you are probably feeling a little overwhelmed. But don’t despair — with the right tools you can quickly make a difference for your company. Everyone assumes the other guy has a great fraud-prevention process in place, but in reality everyone could use some help.

This site was written with the concept of a “Fraud Practitioner” in mind. A fraud practitioner is a person who is actively engaged in defining, managing and monitoring fraud-prevention practices for a business. These individuals may or may not have a background in preventing fraud, security or criminology, but they do have responsibility for stopping fraud.

From my experience working with merchants all over the world, I have seen many different departments in an organization that are responsible for the set up and management of fraud prevention for the business. Likewise, the individuals tasked with setting up and supporting a fraud-prevention strategy come from a variety of backgrounds, including customer service, finance and accounting, and information technology. Only some come from actual fraud, criminal or security backgrounds.

It is important to understand that you will need input and assistance from multiple departments to build an effective fraud-prevention strategy. Customer Service, Sales, Information Technology, Finance, Operations and Legal Departments all have a role to play. You have to integrate these departments into your plans to ensure that the impact of your new business processes and fraud-prevention techniques are well understood and can be interwoven with their goals.

Regardless of the department you report to, and your background with fraud, I have taken a lot of effort in this website to keep the concepts and explanations easy to understand. I have also provided many examples to illustrate fraud schemes and to help visualize how fraud techniques are used.

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